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Wednesday, March 17, 2010

Social Entrepreneurs

Yesterday, Amber and I went to see our lawyer about the possibility of starting up a non-profit, which would focus on helping establish community gardens around Anderson ... as a means of providing fresh vegetables, beautifying the community, and building stronger community relationships.

We left with a pile of paperwork, and the inclination that maybe non-profit status wasn't the way for us to go.

What It Takes to Become a Non-Profit
Becoming a non-profit corporation is not incredibly hard, but it's also not for the faint of heart. You file your articles of incorporation, which turns you into a non-profit corporation. This requires a fair amount of paperwork and, in Indiana, a $750 filing fee - reduced to $300 if you anticipate having a relatively low income your first year. (I forget the exact cut-off, but I think it's less than $25,000 in the first year.) In addition, there are some paperwork and fees associated with securing a unique corporate name within the state.

This makes you a non-profit corporation, but doesn't make you tax exempt. To do that, you have to file separately, both at the state level and then with the federal government for 501(c)(3) status. This allows donors to deduct their gifts as charitable donations. More important for our purposes would be that it would allow the non-profit entity to apply for the many community development grants which only allow 501(c)(3) corporations as applicants.

Beyond that, there are some annual filing requirements and such. It would mean getting an accountant, because it's a bit more than I can handle myself with TurboTax. (One person we spoke to suggested always having an accountant on the board of directors, to work pro bono, which does seem like a clever idea. If accountants are aware of this gambit, I'm sure they run from invitations to join these boards.) To apply for many grants, there have to be regular audits of your organization's financial records.

Fiscal Sponsorship
Through all of this, I began to wonder how much of this hassle was really needed to do good work in the community. To be sure, if you're going to need a lot of supplies (or staff), then you'll probably need access to lots of grant funding over a long term, which means an established organization with 501(c)(3) status is very helpful.

However, a community garden primarily needs start-up capital (and land); the year-after-year upkeep could be handled by membership fees from members of the community who wish to participate. You'd need at least one person at the beginning to devote themselves to getting the thing up and running, but eventually it would be run entirely be volunteers from within the specific neighborhood.

So establishing a 501(c)(3) for this particular activity may just be overkill. What if we sought out an existing 501(c)(3), whose mission was in line with community gardens, and could convince them to let us write a grant on their behalf to provide funding for this activity? In fact, if the organization is well enough established, they may have experienced grant writers on staff, or know of some who can be asked to help. And, since the organization would presumably already be one which is local to the neighborhood in question, it would have a vested interest in seeing that neighborhood thrive.

There is, in fact, a name for this type of joint activity: Fiscal Sponsorship. Though it may sound a bit shady, it's actually perfectly above board (assuming, of course, that you're actually performing the work for which you're getting the tax-exempt money). Under this scenario, a non-profit acts as the sponsor of another organization without tax-exempt status - specifically so that the non-exempt organization is able to access grants and tax-exempt funds, such as donations.

Social Entrepreneur
There's still another possibility, and one which wouldn't have occurred to either Amber or myself in relation to community gardens on our own. A social entrepreneur is someone who uses entrepreneurial methods (sometimes including a successful for-profit business) to achieve desired social outcomes. Author David Bornstein profiles many amazing social entrepreneurs in his book, How to Change the World: Social Entrepreneurs and the Power of New Ideas.

It's unclear to me how small neighborhood community gardens could really fall under the rubric of a profitable social entrepreneurial activity, but to others it must seem natural. In the last two weeks there have actually been two people who - unsolicited, mind you! - offered up that they might be interested in investing in such a business, if we could figure out how to make it profitable.

While I don't know have a vision for a community garden business, the idea of social entrepreneurship has taken a strong hold with me in other ways. I had been considering starting a non-profit of some kind eventually - more of a private foundation, which funded other activities - but in reading Bornstein's book, it became clear that this wasn't really necessary. As a for-profit business, I can still designate funds toward philanthropic activities, grants, scholarships, awards, and so on, seeking out worthy recipients on my own.

Surprisingly, the philanthropic arm of Google - called Google.org - is apparently set up as a for-profit entity, although one of its functions is to manage grant-giving, including from the tax-exempt Google Foundation. Philanthropy is so central to Google's vision that their founders made "making the world a better place" (as well as "don't be evil") part of their corporate mission when announcing the IPO of their stock back in 2004.

And now, we are in the process of establishing the Google Foundation. We intend to contribute significant resources to the foundation, including employee time and approximately 1% of Google's equity and profits in some form. We hope someday this institution may eclipse Google itself in terms of overall world impact by ambitiously applying innovation and significant resources to the largest of the world's problems. - "An Owner's Manual" for Google Shareholders

Corporations like Google are not successful despite their commitment to making the world a better place, but specifically because of this commitment. It makes good sense all around. Bornstein makes it clear that he sees social entrepreneurs as "transformative forces."

... it takes creative individuals with fixed determination and indomitable will to propel the innovation that society needs to tackle its toughest problems.... an important social change frequently begins with a single entrepreneurial author: one obsessive individual who sees a problem and envisions a new solution, who takes the initiative to act on that vision, who gathers resources and builds organizations to protect and market that vision, who provides the energy and sustained focus to overcome the inevitable resistance, and who - decade after decade - keeps improving, strengthening, and broadening that vision until what was once a marginal idea has become a new norm. - David Bornstein, How to Change the World

An ambitious goal, which many would certainly mock. But if even a few of these visionaries can make it work ... that's a world I want to live in.